Umut Shayakhmetova: Political changes, rallies and strikes affected banking sector

Almaty. October 29. KazTAG - Valentina Vladimirskaya. The political changes, rallies and strikes that have been observed in the first half of 2019 have affected the banking sector, and the main events include the process of integration and consolidation of banks, reduction in lending to the economy, and provision of state support to the banks. Umut Shayakhmetova, chairwoman of board of Halyk Bank JSC has told KazTAG about the situation in the sector.

- Which events will you mark in the past year and in the first half of this year?

- Of course, consolidation of Halyk Bank with Kazkom which brought a large player with 35% market share. The second big event of last year was the problems of Tsesnabank and its recovery and saving. Now the bank is called Jysanbank. Tsesnabank was the second after Halyk by the end of 2018. From the point of view of the sector, probably the integration of the banks was possible due to the state support.

The second event is the continuation of retail loan portfolio growth. Growth stopped last year and lending to the real economy sector dropped this year. Only the retail portfolio has been growing.

In the first half of this year, we have seen big changes among the players. It was completion of the transaction for rehabilitation of Tsesnabank, then its merger with First Heartland Bank JSC and its transformation into First Heartland Jýsan Bank JSC . It is consolidation of three small banks: Tengri Bank JSC, AsiaCredit Bank JSC and Capital Bank Kazakhstan JSC. In general, there has been a tendency of consolidation and there have been small changes in regulation.

Recently Dosayev (chairman of the National Bank of Kazakhstan ) announced that the regulation of banks' retail portfolio in several directions would change from January 2020.

Political changes took place in the first half of 2019. Undoubtedly, they have affected the banking sector. The shares of Halyk Bank and other companies - Kazakhtelecom, KAZ Minerals fell for a short time, but then they recovered. Of course, all the news about rallies and strikes had effects on the banking sector. At the rallies people asked to sponge the debts, after which the Government allocated state support. The year was very active, literally every month there were significant changes and events. Every day we have to stay focused, we monitor the foreign markets, the domestic market of Kazakhstan - everything that is related to the bank. Therefore, we have no time to relax.

- An S&P conference was held recently and experts said that the consolidation of banks in Kazakhstan will continue. This process is underway all over the world, and in this regard, Kazakhstan is in line with the general trends. Do you agree with this opinion?

- The banking sector is capital intensive and now it tends to become low margin. Banks tend to refuse from their interest in the race for the clients.

- Consumers do not seem to notice this. I do not see any changes in mood, I practically do not see any people, except for the specialists who would write in social networks that banks have become cheaper, that the interest rates have got lower.

- Today there is such a tendency in Facebook. It looks like everything is bad, that people are always dissatisfied with something. Moreover, no one wants to start with himself. People do not want to pick up paper in the streets, they are dissatisfied with dirty streets, but at the same time they drop litter there.

As for the banking services, I absolutely disagree.

Today if you pay through the mobile banking of a bank, the commission is 0, the service is free. The interest yield, i.e. if you take a loan, cannot be free. Loans cannot be free because banks take deposits and with these deposits we pay the interest to the clients, ensure safety, manage this money and, of course, people get the interest. But there is also a tendency of reduction of interest rates. They are going down.

If people get expensive loans from microcredit or pawnshop organizations, of course, it is more of their problem. Somewhere it is illiteracy, maybe it is a  fear of coming to the bank or even unwillingness to register some extra documents.

Naturally, banks require documents, revenue transparency; people have to indicate the source of income. We analyze the likelihood that this money will be repaid to the bank, that the client will be able to repay the loan. This is absolutely normal, standard procedures.

I go on business trips to - Tajikistan, Uzbekistan, Kyrgyzstan, Russia, Georgia. I can definitely say that Kazakhstan is the best. I mean political and economic situation. The situation in all these CIS states , including, I think, Ukraine, is much harder, more complicated than what we have today.

-How do you assess the interest of investors in Kazakhstan, including to the bank? Recently, Tim  Bennett, Chief Executive Officer at Astana International Exchange, said that our economy is small for investors.

- Yes, probably, our market is small, taking into account the fact that the size of population is a little higher than 18 million. But the more I work, the more I think that the Central Asian states can make internal integration. We have many things in common. First of all, the culture, the language. As for the Latin alphabet. Why don't we make a single Latin alphabet for Central Asia? But it is different in Uzbekistan, in Kazakhstan. There is one language.  There might be introduced single principles of alphabet. Definitely, there are potentials for growth in trade turnover, labor resources, financial flows, tourism.

When I travel I think that it would be easy for us and Kyrgyzstan to open borders. Everyone would benefit. The market would extend. They are rich with small and medium business. I think, there is a potential for the region and for the state.

If we compare Kazakhstan to the period 15 years ago, the time when there was a boom in foreign direct investments,  in the growth of Capital Markets  and investors directly came here. Large projects are still working such as  Kashagash, Karachaganak and others.  We issued Eurobonds, syndicated loans, corporate bonds and so on, today we are an even bigger state, the economy is bigger today.

Why don’t investors come? Probably, because there is no domestic securities market - like we had 10 years ago. It was removed through creation of USPF. Probably, the state’s share in the economy has increased, and subsequently the opportunities for private capital have narrowed. Because the creation of Samruk was a trend of 2005-2006. The crisis hit in 2008,  Samruk and Kazyna were consolidated and Samruk-Kazyna completely absorbed everything.

If we compare Kazakhstan 20 years ago and today, that time there was a boom in investments and their inflow in Kazakhstan, we don't have any today, probably  the reason is in some internal things, administrative ones.

- You mean the question is not in the size of economy?

- Yes, look at Georgia. Two banks are trading at Premium listing in London. Tourism is attractive. Tourism attracts small and big investments.

It does not always depend on the economy. It also depends on the investment climate and work opportunities inside the state from the point of view of the economy.

- How do you assess the success of your global depositary receipts in the markets?

- I believe that the GDR deal was successful. We have almost doubled the liquidity of our shares. Before the transaction, our GDRs were trading at 17% of the total bank capitalization; today it is already 27%. We have increased the level of capitalization. The price increased after offering. Investors approached us really positively. We have attracted investors who have never worked with Kazakhstan. These are very large funds, we do not have the right to disclose the names. The investor base has doubled. Previously, about 40 venture and investment funds invested in us, but today there are more than 80.

This transaction has been the largest in the EMEA market in the past three years, it is worth $ 344 million , and the placing volume is only 10%,  it is the highest quality portfolio, which, as our managers tell us, they have seen over the past few years. And it concerns not only Kazakhstan but also the CIS and Eastern Europe. Therefore, the deal is successful.

Today we represent Kazakhstan - the Proxy name, as everyone tells us.

- Why?

- Firstly, we are the largest bank, we reflect the entire economy of the country. If Halyk Bank feels good, it means that the situation is stable in the state, if Halyk feels bad then it means the situation is very bad in the country. Plus, they realize that if there is growth in the portfolio of Halyk, then the country's economy is more or less growing. It means there is lending to small and medium enterprises